Bernie,
Your items of importance for selecting this fund are:
#1 Income
#2 Volatility
#3 Trading Frequency
#4 Entry point.
For paragraph 3, that is the CEF is being added as a bridge investment partly in the foundation, partly in the middle layer, I have a slightly different order, although actually a different expression of the criteria.
#1 Volatility - this includes trading frequency - we pick a volatility that gives us a desirable trading frequency.
#2 Income - This is a VERY close second. Two funds with nearly identical income, but one with a slightly higher volatility, I'll pick the higher volatility. Trading frequency is impacted by trading costs. With a flat fee for unlimited trading, we'll be tempted to grab EVERY piece of low hanging fruit. With a low fixed cost per trade, we will be a bit more selective in our trading. With commissions like Schwab, trade maybe only once or twice a month.
#3 Entry Point - This is a don't care provided that we will not be second guessing ourselves. Once we have winnowed down our list of candidates for investment in a CEF, and made our selection, don't be a second guesser. Stick with it, ride it thru at least one full interest rate sinusoid, low-high-low-high, unless something fundamental has changed (i.e. a change in the investment strategy of the fund, a significant change in the management fee structure, a significant shift in the risk of default in the holdings of the fund, etc.)
Now for the question Fund A vs Fund B, identical holdings, but different investor perceptions.
Premium vs Discount
I cannot/will not make a decision solely based on this criteria when my objective is to add an AIM'able fixed income CEF to my portfolio. Implicitly, identical holdings mean essentially identical income, and essentially the same percentage change in prices in response to changes in interest rates. My view is that over the long term, each fund will return very nearly identical results in an AIM. The fund trading at a discount to NAV will have a higher %dividend (identical income divided by lower price equals higher percentage). See, I worked myself into saying that the Discount to NAV is attractive. Still, I can't justify making a selection solely on percent delta to NAV. I may well get there, but via a different route. AIM doesn't care, it only wants to see price change.
OTOH, there MAY be a GOOD reason why Fund A is trading at a premium, and Fund B is trading at a discount (not just popularity or recommendations).
Robert |
